Borrowing by Not-for-Profit Public SectoBorrowing by Not-for-Profit Public Sector Entities

Borrowing by Not-for-Profit Public Sector Entities

BC9 The Board discussed the nature of borrowing in the public sector. The Board observed that borrowing can be related to funding government activities or, in the case of the Commonwealth and depending on the economic circumstances, might have a public policy purpose such as supporting a domestic bond market.

BC10 The Board noted that Australian governments generally use centralised borrowing agencies and the distribution of borrowings to government departments or other agencies could take a different form to the initial debt raising, and that there may be little nexus between centralised borrowings and the individual qualifying assets in a government entity. Similarities in the use of centralised borrowing activities between the Australian government and large private sector entities were considered. The Board also noted that the level of complexity in terms of the number of lines of credit and the number of group entities responsible for acquiring or constructing qualifying assets is likely to be greater than that of the for-profit sector.

BC11 However, the Board also observed that the Standard envisages that entities may borrow centrally and acknowledges that this can create difficulties for determining whether a direct relationship between particular borrowings and a qualifying asset exists, and that the exercise of judgement would be required in such situations.